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2008 (10) TMI 594 - HC - Indian LawsDerivatives contracts are challenged as illegal and void - Held that:- Transactions in derivatives, fall within the category of "business activity undertaken by the Bank" as they are covered by Section 6(1) of the Banking Regulation Act, 1949. Therefore no difficulty in coming to the conclusion that if the transaction in question gives rise to a claim by the Bank, of any liability, on the part of the plaintiff, the defendant-Bank may certainly be able to invoke the provisions of Act 51 of 1993. Therefore derivatives transactions ceased to be purely speculative deals, long time ago. The pricing of the deals, follows a scientific pattern on the basis of Financial Mathematics. Just as Actuaries scientifically determine the value of insurance risks and the premium payable, Financial Mathematicians (or Portfolio Managers) evaluate the price of these derivatives. Hence they cannot be termed as wagers. The Master circulars A.D.(M.A.Series) 21 and 26 dated 23-12-1994, extracted in paragraph-97 above, expressly permit customers to hedge their receivables and payables against a third currency instead of Indian rupee, subject only to 2 conditions namely (1) that such third currency should be a permitted currency and (2) that it should be actively traded in the market. Swiss Franc satisfies both conditions. Therefore the first ground of attack is unsustainable. Asit is the admitted case of the plaintiff (para 4 of the plaint) that they had export orders to the tune of ₹ 111 crores for the period upto 31-12-2007 and that they had foreign currency loans to the tune of USD 30 million. It is only by showing their foreign currency receivables and payables that the plaintiff entered into the ISDA Master Agreement. Therefore, they cannot now contend that this particular deal alone had no underlying exposure. The Board of Directors of the company cannot feign ignorance of the declaration and risk disclosure statement made by Mr.P.K.Viswanathan, while confirming the deal OPT 727. In such circumstances, the plaintiff cannot be heard to contend that the Bank failed to ensure the existence of a risk management policy, after having allowed Mr.P.K.Viswanathan to sign the declaration and risk disclosure statement. It was the fate of the US Dollar, which has brought the plaintiff to the cliff. Therefore the plaintiff which had the benefit of a push, up the ladder in 9 out of 10 deals, cannot duck when it comes to a pull, down the ladder in the remaining 1 deal. Every business venture provides a roller-coaster ride at some point of time or the other and the validity of contracts cannot be judged on the basis of the success or failure of the venture. Therefore the plaintiff is not entitled to any injunction restraining the bank from enforcing the contract OPT 727. The suit is maintainable, the application to revoke the leave A.No.1926 of 2008 and the application to reject the plaint A.No.1927 of 2008 are dismissed. The jurisdiction clause contained in the ISDA Master Agreement does not confer exclusive jurisdiction upon the courts in Mumbai, by the use of the words "only" or "alone".
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